What's inside? Here are the questions answered in today's reader mailbag, boiled down to summaries of five or fewer words. Click on the number to jump straight down to the question.
1. Stock options to repay debt
2. Replacing a washer and dryer
3. Eating out constantly
4. Best paper shredder
5. Archiving magazines?
6. Stuck in part-time loop
7. The basics of a Coverdell
8. Thoughts on homesteading/self-sufficiency
9. Tax software recommendation
10. Figuring out self-care spending
11. Retirement savings when loving career
12. Goals and people we love
My favorite gift that I received for the holidays this year was a giant crocheted blanket (from my wife, who crocheted it herself) that actually covers me well from my upper torso to my feet, wrapping around down there with plenty of free room, and enough width to wrap around my body fully. I'm tall, so it is really hard to find a blanket like that that isn't also basically a bed comforter.
It's so warm and soft. It's the best blanket I've ever had and one of the best and most thoughtful gifts I've ever received. She saw how my feet were always sticking out under blankets and how I was always adjusting them and just made me a big one.
Great gifts don't have to be bought on Black Friday.
On with the questions.
Currently my budget is super tight, down to the dollar. I pay most of the bills and my wife saves her salary. We currently have two car loans, $9k and $12k remaining on them — it was a bad decision at the time; 8% interest rate on each car loan. I currently have company stock options that are fully vested that if I exercised would cover the payoff amount on both loans. Is it worth it to exercise the options to pay off the car loans? I think there is greater than 8% upside on the options but having some wiggle room in my budget/cash flow would be a stress relief.
My tendency would be to pay off the loans if you are going to do something responsible and forward-thinking with the financial freedom that the debt payoff gives you. If it's just going to give you more money to spend on frivolous stuff, it's not worth it.
What are you going to do with the money that you were committing to monthly debt payments? Maybe you could fund a Roth IRA with that money, for example. Maybe you'll start saving for a house down payment. I don't know what your goals are, but you should have a goal and a plan in mind.
If you do have a goal and a plan for what to do after the debt is gone, then go for it. If you don't have a goal and a plan, I'd stick with the stock options until you do.
Our washer bit the dust so we are replacing the washer and dryer. Are high-efficiency models worth it?
First of all, there's really no need to replace a dryer just because the washer failed. The main reason to do so is for aesthetic reasons. Your old dryer will keep doing the job for a long while, provided you maintain it properly. You might also consider it if you're moving to a washer with a much higher capacity than your old one, but that doesn't seem to be the case here.
Assuming that you're still going to replace them, high-efficiency models do a perfectly good job for normal home laundry use. If you're constantly trying to wash mud-caked clothes or enormous thick items like huge blankets on the regular, you might want something more industrial strength, but if you're washing normal, non-grimy working clothes, gym clothes and items worn around the house, it'll be fine. Stains will be fine, too, when pre-treated. For things like that, high-efficiency washers do the exact same job that non-HE washers do.
We're still using a washer that's almost 20 years old, which predates HE washers, so my experience with them isn't extensive. However, I have family members who have them and they vouch for the fact that they work just fine for normal use.
For the first three years we've dated, my partner and I have eaten out for most meals. Our usual cycle is to eat out four to five times a week and then eat leftovers and finger foods and a few microwave meals the rest of the time. This is unhealthy and pretty expensive so I've been trying to eat more at home but my partner just seems to hate everything I make and suggests eating out constantly. I know I am not a great cook but I don't know how to get better without doing it and if I just agree to eat out all the time I will never get better and we will keep spending. Not sure what to do.
The solution is compromise. Set, say, two or three nights a week where you're going to prepare a meal, and then you'll also eat out two or three nights a week and eat leftovers the rest of the time. I don't know the exact dimensions of your schedule, but something on this order would work.
You'll get practice cooking two or three times a week. Your partner gets to eat out as she prefers two or three times a week. On the nights you make food at home, you'll save significant money. Sure, it won't be as much as it would be if you never ate out, but it's definitely a step in the right direction.
Furthermore, the more you practice, the more appealing it will likely become to eat at home. The better your food gets and the more efficient you get at preparation, the better the "eat at home" option becomes.
Talk about it. Come up with a compromise. You'll save some money and still get food preparation practice and your partner gets what they want, too.
Do you have an official "Simple Dollar recommendation" for a paper shredder? Bought two different ones in the last two years and both are junk.
Here's the truth: home paper shredders are pretty bad unless you're spending hundreds of dollars. They'll handle only a few sheets at a time and overheat fairly quickly, requiring a cool down. It is really really easy to overload such paper shredders, even if you didn't intend to. Between the small number of sheets to be shredded at a time and the additional time needed to cool down regularly, they can really try one's patience.
My recommendation for most people is to save all documents that they want to shred in a tub and then check around their community to see if the city or any businesses have an annual "shredding day" where they bring in a gigantic industrial-sized shredder that can shred all of your documents in just a moment or two, turning them to pulpy shreds quickly. In our area, a local bank has a "shredding day" for free for all of its customers and it's actually fun to watch that shredder get down to business.
If you absolutely must have one for home use, I'd probably recommend the Fellows Powershred 79Ci. It has a ton of good reviews, cross cuts the shreds for better security, and can run for about 15 minutes before cooldown is needed as long as you feed it at the rate it was designed for. However, even with this one, you have to understand the limitations. It's only going to shred 16 thin sheets at a time and you should probably feed through fewer than that with each pass, and it will overheat after a while, so don't push it with tons of continuous shredding. If you need to shred for hours, you should be looking into something that's more industrial strength.
What do you do with magazines that you might want to refer to again someday? We store a lot of them in the garage but there are just so many of them.
Personally, when I'm done with a magazine and it's getting taken out of our magazine rack in our living room, I go through it and tear out any articles I might ever want to refer to again, then I create a note in Evernote and take pictures of the pages from that magazine that I want to save, laying them out flat so the picture is clear, then I recycle those pages, too. This creates a digital and searchable archive of those pages. Within Evernote, I have a few "notebooks" just full of notes that are these kinds of pictures of magazines I'm tossing. I can search for and find the articles I want at a moment's notice.
I'll be honest: we used to store magazines. I found the thought of doing this to our entire archive overwhelming. What I eventually realized is that I wasn't likely ever going to look at 90%-95% of those magazines again. So, I grabbed each issue, glanced at it and decided whether there was anything really valuable in that issue within a second or two, and if there wasn't, I recycled it. If there was, I put it aside in a "second pass" stack. I then went through that "second pass" stack and if anything in there stood out as worth saving, I archived it in Evernote as mentioned earlier. Now, I just do the archiving when an issue gets too "old" for our magazine rack.
This saves a lot of space in closets and actually makes it far easier to use meaningful stuff from those archives. The stuff I don't care about much is stuff I'll honestly never bother to look at again, so why keep it?
I currently work at two different part-time jobs, each around 35 hours a week. Neither employer offers health insurance. I make about $31K a year. I need that income to take care of my two sons after my ex deserted us and disappeared. But I have no way to get anything better. I am willing to work for a better life but there is no path to a better life I can see.
If you're a single mom with two children, my honest suggestion would be to quit one of your jobs, seek out government assistance (which you will then qualify for), and then take classes at your local community college to get yourself qualified for a better job. You are almost a picture-perfect example of the type of situation that such assistance programs are designed for. You can start by looking at Benefits.gov.
Since I don't know exactly where you live, I can't recommend specific programs. I would suggest that the first thing to do is to contact your local community college, discuss your situation with them, and see what resources they can point you toward. If you're comfortable, I would visit a mainline church in your area and talk about your situation with the pastor, who will be aware of assistance programs in your area and have some good secular advice on what to do next.
Remember, assistance isn't a sign of weakness. You're like an athlete who broke an ankle and is trying to limp along on it, but you won't recover until you get some proper therapy. Spend time recovering your situation so that you can run again.
I am 26 years old. About 15 years ago, my grandfather had a stroke and was put into a long term care facility. He passed away recently and I learned that he had established a Coverdell account in my name that has about $17,000 in it. I have done some reading online and understand that it's basically a 529, but I don't know what to do. I think I was dishonest when applying for financial aid 2012-2016 but I don't really know what to do about it now. I also don't know what to do about the account. My aunt suggested contacting a financial advisor but I am afraid they'll just take the money. Hoping you can set things straight.
Don't worry about the FAFSA. You filled it out accurately and honestly as of the date when you signed it and didn't commit any kind of fraud.
As for the Coverdell money, you're correct that it's basically a 529 except without the state income tax benefits. If you withdraw money from it for non-educational purposes, you'll have to pay taxes on it plus an additional 10% penalty. Furthermore, you have to withdraw the money by the time you're 30.
If you have student loans, there have been some moves by legislators in recent years to allow 529 and Coverdell money to be used for student loan repayment, so it might make sense to sit on the money for now and see what changes. You could contact your congressperson and ask them to take up the "529 and ABLE Account Improvement Act," which is an act that was introduced before the House and seemingly never acted upon. However, it seems somewhat unlikely that the rules will change anytime soon, as the House seems busy with other business.
If you have no intent of returning to school before age 30, your best bet is probably to withdraw the money, pay the taxes on it and the penalty, and use the money for something financially wise (like paying off debts). You can sit on it and see if laws change in the next few years, too. You can figure out the tax implications in your specific situation with a tax preparation package, where you add in the account to your current year's preparation and see what changes.
What is your opinion on the homesteading and self-sufficiency movement? It seems to be a good way to keep costs extremely low.
It is a good way to keep costs extremely low, but there are a few requirements.
For starters, to keep costs low while still enjoying a lot of perks of modern living requires a lot of up-front investment. For example, to completely decouple from the energy grid requires wind or solar or other forms of energy as well as a way to store that energy. That means wind turbines or solar panels and batteries. To decouple from the food system in America requires a lot of investment in small scale farming equipment, livestock, and so on. You'll also need adequate land for all of this stuff, and land isn't cheap.
Assuming you do have all of these things, it's going to require a lot of work and a lot of well-rounded knowledge and skill to keep it going. You need to be able to raise livestock in the morning and repair solar panels in the afternoon and fix plumbing in the evening. Obviously, not every day is like that, but you need to have the skills and preparation to be able to handle all of that.
This requires a particular type of person. I can see the appeal in living that kind of lifestyle, and the financial ongoing cost would be really low (your property taxes would probably be your biggest expense for the year), but it would require a lot of work and a desire to do that kind of work, and it would also require some significant investment and skills to pull it all off or else accept losing some aspects of modern life (electricity, internet, plumbing, etc.).
It's great for some people and not great for others, in other words. That's true for a lot of life options, though.
What is your recommendation for tax prep software for 2020?
If you make below $69,000 per year and have pretty straightforward taxes (meaning you're not running a business or anything), I recommend using the Free File program from the IRS. It does a pretty good job especially for simple returns.
Above $69,000, you can use the Free File fillable forms, but they require you to really know how to do your own taxes. If things are quite simple for you, this isn't hard — I'd try it if you only have one employer and one W-2 and only one or two other tax documents — but if it gets more complicated, you will need some more guidance than they provide unless you want to spend a ton of time doing it manually.
If neither of those apply to you and you used tax prep software last year, I'd use that same package in the current year's form. The ability to just import everything from last year and change a few numbers is an enormous time saver and there aren't enough big differences between the software packages to make switching worth it.
If none of those apply to you, I recommend TurboTax. It's the most expensive (still, under $40, but more expensive than other options), but if you're in a situation where the above options don't meet your needs, you'll want something very full-featured and this will do what you need. I have a lot of quibbles with TurboTax, but I have a hard time recommending anything else if Free File doesn't meet your needs.
In 2019 my wife and I set some financial goals for the year and almost entirely succeeded at them. We paid off all debt but our mortgage and cut a lot of spending and funded Roth IRAs for both of us. In 2020, we decided to look at areas of self-care and decided to set a small monthly budget for each of us for forms of self-care, like gym memberships and hobbies. After a lot of thinking I am still struggling with the best way to spend this money and whether I even want to. I am hoping you'll have some good food for thought.
I'd start by asking what areas of your life you feel that you need self-care in. What are your goals? Do you have health or fitness goals? Do you have hobbies that you want to devote more time and energy to? What do those goals look like?
Define what you want to do before you even think about the budget. Figure out what things will provide the most value in your life. I'd keep the number fairly small, as splitting your focus too much takes you back to a feeling of never having enough time for anything.
Once you've done that, figure out what the expenses for those things will be. That's the point when you should be thinking about costs and how to make all of this fit in your self-care budget.
In other words, start with what you actually want to change in your life regarding self-care. Figure that out, figure out what you want to do in those areas, and then ask yourself how you can make that work within the budgetary constraints that you and your partner have set.
For the last 23 years, I have been a social work administrator. Most of my job centers around making sure that on the ground social workers are matched with cases that they can succeed at, helping them be in the right state to succeed, and sometimes examining and intervening in difficult cases. I love my job dearly. It brings meaning into my life and pays the bills and I want to keep doing it until I literally can't anymore. I would feel empty without this work in my life.
I am constantly being urged to save for retirement both within my agency and also by external sources like The Simple Dollar but I find it really hard to motivate myself to save for it when I would far rather work than be retired.
You're not saving so that you can have the typical retirement that's often depicted in pop culture. Rather, you're saving for other situations.
You're saving for the situation where you're no longer able to be employed in your field, for whatever reason. You're saving for the situation where your passion that you have now fades, since people do change over time. You're saving for when you don't have the energy to do this full time and move into a part-time role. You're saving for all kinds of situations like this.
If you love your job, keep going! There's nothing saying you have to stop at 65 or 70 as long as your employer is happy and you are happy.
Your retirement savings is solely for situations where either you are no longer happy or your employer is no longer happy and you don't have the ability to simply easily hop to another job. At some point, you won't have as much energy as you do now — it happens to everyone. That's what the savings is for. It's to make sure that, at that point in your life, you're secure because you took action now.
What you give up today for retirement savings is the least important expenses in your life. Look at your spending and look at the most foolish 5% to 10% of your spending. That's what you drop — the forgettable stuff, the stuff that you can live without. You use that money to make sure you're secure when things change, expectedly or otherwise.
I sincerely hope that if you still have the passion for this when you're 70, you can keep doing it until you're 80. If you still have the passion when you're 80, you can keep doing it until you're 90. However, I can't guarantee that passion and I certainly can't guarantee that opportunity. Retirement savings is for the many reasons why those things can't be guaranteed.
At the start of 2019, I followed your goal-setting strategy and set an intention to see an elderly cousin of mine once a quarter. Those visits, plus a couple more, phone calls, and notes enriched our already warm relationship. Yesterday I learned that she died earlier in the week. I'm grateful that I got to know her more and tell her how much she meant to me.
There are a lot of good things wrapped up here that we can all take away.
For starters, tell people you care about that you care about them. Yes, it can be hard. Yes, it can be awkward. Yes, it can feel uncomfortable. Yet, it's that willingness to be vulnerable that makes the difference, and you can change a person's life for the better by telling them how much they mean to you.
Furthermore, do it now. You never know how long people have left on this planet. The things you want to say that you keep putting off because you'll do it someday need to happen today because you don't know for sure that those people will be here tomorrow.
There's also a powerful element of setting personal goals and plans for yourself. Make it a goal to call the people you care about once a week or once a month. Put it in your calendar and make it sacrosanct. Make it something you don't skip unless you absolutely have to, and in those situations you intentionally reschedule it as soon as possible.
Telling people you care about them is good for you, it's good for them, and it's something you need to do sooner rather than later because you never know how long you have and how long they have, either.
Got any questions? The best way to ask is to follow me on Facebook and ask questions directly there. I'll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive many, many questions per week, so I may not necessarily be able to answer yours.